A home equity line of credit, or HELOC, is a type of loan that allows homeowners to borrow against the equity they’ve built up in their property. It’s a revolving line of credit, similar to a credit card, with a predetermined limit based on the homeowner’s equity.
Current average HELOC rates are around 9%. While that’s historically high, it’s lower than the rates on most personal loans or credit cards, so you can save a lot of money in interest with a HELOC. But borrowing with a HELOC comes with some big risks. The biggest one is that if you’re unable to pay back the loan, you could lose your house. Before applying for a HELOC, make sure you have a repayment strategy.
Here’s what you need to know about how these lines of credit work and where to find the best rates.
This week’s HELOC rates
Here are the average rates for home equity loans and home equity lines of credit, as of Oct. 25, 2023.
|Loan type||This week’s rate||Last week’s rate||Difference|
|10-year, $30,000 home equity loan||9.03%||8.99%||+0.04|
|15-year, $30,000 home equity loan||9.07%||9%||+0.07|
Note: These rates are averages determined by a survey conducted by Bankrate of the top 10 banks in the top 10 US markets.
Current HELOC rates and trends
HELOC rates aren’t fixed. They fluctuate based on market conditions — a key one being the Federal Reserve’s short-term interest rate, the federal funds rate.
When the Fed began increasing the federal funds rate to stall inflation back in May 2022, HELOC rates increased too. Since then, the Fed has approved 11 hikes to its key rate, and average HELOC rates are now around 9%. Last month, the Fed voted against another rate hike and most experts predict it will do the same at its upcoming Nov. 1 meeting. A steady federal funds rate means rates on HELOCs will stay relatively flat.
While the Fed won’t cut interest rates before inflation settles to 2% for several months, it’s possible we’ve seen the last of its rate hikes. In the meantime, rates for home equity loans and HELOCs will likely stay elevated.
With rates so high, what makes a HELOC an attractive option to homeowners?
Unlike a cash-out refinance, a HELOC lets you tap into your equity without sacrificing the rate on your primary mortgage. That’s a major draw for many homeowners who are reluctant to give up their lower-than-average mortgage rates but still want to cash in on their home’s equity, according to Doug McKnight, president of commercial real estate firm RREAF Holdings.
But borrowing with a HELOC or home equity loan comes with a risk: You could lose your house if you can’t repay your balance. Before applying for a HELOC, make sure you map out a repayment strategy.
Top HELOC rates for October 2023
|Lender||APR||Introductory APR||Loan amount||HELOC terms||Max LTV|
|US Bank||8.95% to 12.70%||N/A||$15,000 – $750,000, up to $1 million for properties in California||10-year draw period, unspecified repayment period||80%|
|TD Bank||8.34% (0.25% TD checking account discount included)||N/A||From $25,000||10-year draw period, 20-year repayment period||89.99%|
|Connexus Credit Union||From 8.74%||3.99% until Oct. 1, 2024 or 4.49% until Apr. 1, 2025||$5,000 – $200,000||15-year draw period, 15-year repayment period||Not specified|
|Spring EQ||Fill out application for personalized rates||N/A||$50,000 – $500,000||10-year draw period, 20-year repayment period||90% for home equity loans, not specified for HELOCs|
|KeyBank||From 11% (0.25% KeyBank client discount included)||N/A||From $10,000||15-year draw period, 15-year repayment period||90%|
|Third Federal||7.49%||N/A||$10,000 – $200,000||10-year draw period, 30-year repayment period||80%|
|PNC||Fill out application for personalized rates||N/A||$10,000 – $1 million||10-year draw period, 30-year repayment period||89.90%|
|Frost||9% to 18% (0.25% autopay discount included)||N/A||From $8,000||10-year draw period, 20-year repayment period||80%|
|Regions||8.875% to 15.75% (Regions client discount included)||N/A||$10,000 – $500,000||10-year draw period, 20-year repayment period||95%|
|Citizens||From 8.5% (0.25% autopay discount included)||N/A||From $5,000||10-year draw period, 15-year repayment period||80%|
|BMO Harris||From 8.49% (0.50% autopay discount included)||6.99% for first six months||From $10,000||10-year draw period, 20-year repayment period||70%|
|Flagstar||8.74% to 21% (0.25% autopay discount included)||N/A||$10,000 – $1 million||10-year draw period, 20-year repayment period||89.99%|
|Truist||10.05% to 16%||7.49% for first 12 months||From $10,000||10-year draw period, 20-year repayment period||85%|
|Figure||Fill out application for personalized rates||N/A||$15,000 – $400,000||Five, 10, 15 or 30 years||95%|
|PenFed Credit Union||From 8.625%||N/A||$25,000 – $1 million||10-year draw period, 20-year repayment period||90%|
Note: Annual percentage rates as of Oct. 2, 2023. Your APR will depend on factors such as your credit score, income, loan term and whether you enroll in autopay or other lender specific requirements.
Best HELOC lenders of October 2023
What is a HELOC?
A home equity line of credit, or HELOC, is a loan that lets you borrow against the equity you’ve built in your home. Unlike a home equity loan, a HELOC offers you a line of credit rather than a lump sum of money, similar to a credit card. You can access your line of credit during the draw period, usually 10 years. During that time, you’re generally required to pay back only the interest on the money you’ve withdrawn, which means you can borrow a large amount of money for an extended period of time while making only minimum monthly payments.
The most common uses of a HELOC are for home improvements, such as adding solar panels, debt consolidation and other large expenses. However, there are no restrictions on how you can use the money from a HELOC.
HELOCs generally have lower rates than most credit cards, personal loans, home equity loans and mortgage refinances. But HELOCs are also risky because they’re secured loans, which require collateral to obtain financing: Your home serves as the collateral, so if you’re unable to pay back the money you’ve withdrawn, you could lose your house. In addition, HELOCs usually have variable interest rates, meaning your rate can go up or down with the market, so you won’t always have a predictable monthly payment.
Who qualifies for a HELOC?
Although it varies by lender, to qualify for a HELOC you’re typically required to meet the following criteria:
- At least 15% to 20% equity built up in your home: Home equity is the amount of home you own, based on how much you’ve paid toward your mortgage. Subtract what you owe on your mortgage and other loans from the current appraised value of your house to figure out your home equity number.
- Adequate, verifiable income and stable employment: Proof of income is a standard requirement to qualify for a HELOC. Check your lender’s website to see what forms and paperwork you will need to submit along with your application.
- A minimum credit score of 620: Lenders use your credit score to determine the likelihood that you’ll repay the loan on time. Having a strong credit score — at least 700 — will help you qualify for a lower interest rate and more amenable loan terms.
- A debt-to-income ratio of 43% or less: Divide your total monthly debts by your gross monthly income to get your DTI. Like your credit score, your DTI helps lenders determine your capacity to make consistent payments toward your loan. Some lenders prefer a DTI of 36% or less.
How to apply for a HELOC
Before applying for a HELOC, make sure that you’ll be able to qualify for the loan amount you need. Also, confirm it’s the right type of loan for your situation because there are other ways to access your home equity, such as home equity loans or a cash-out refinance. Also make sure you meet the basic requirements of most lenders by having at least 15% to 20% equity in your home, a good credit score and a low combined loan-to-value ratio, or CLTV, which is the ratio of all of your outstanding mortgage balances compared to the market value of your property.
How to determine your LTV ratio
To calculate how much equity you have in your home, look up your outstanding mortgage balance and subtract it from your home’s appraised value.
For example, if your home is currently worth $500,000 and you have $400,000 left to pay on your mortgage, then you have $100,000 of equity in your home.
The next step is to determine your loan-to-value ratio, or LTV ratio, which is your outstanding mortgage balance divided by your home’s current value. (Your combined loan-to-value ratio, or CLTV ratio, is simply the ratio of all outstanding loans secured against your property divided by your home’s current value. Most lenders want to see a CLTV of 85% or lower.) So for a $500,000 home that you owe $400,000 on, the calculation would be:
$400,000 / $500,000 = 0.80
In this example, you would have an 80% LTV ratio. Most lenders will let you borrow in the neighborhood of 75% to 90% of your available home equity, but having a high LTV tells a lender you may be a risky borrower. To determine if you’ll hit that threshold you can use the below formula, which assumes a lender will allow you to borrow up to 85% of your home equity:
$500,000 [current appraised value] X 0.85 [maximum equity percentage you can borrow] – $400,000 [outstanding mortgage balance] = $25,000 [what the lender will let you borrow]
Reach out to lenders
It’s important to interview multiple lenders to find a loan with a favorable interest rate and terms. The more banks and lenders you contact, the better your chances of finding more favorable rates and fees overall. A good place to start can sometimes be the lender or bank that issued your first mortgage, since they’ve already approved you for one loan and you have an existing relationship with that lender. Also compare rates from online lenders.
Send in your application
Once you’ve chosen a lender, it’s time to gather all of your financial documentation to verify you can comfortably pay back the HELOC. You’ll need things like proof of income and employment, and in some cases, you may need to pay for a new home appraisal to verify the current market value of your property, especially since home values have skyrocketed over the past two years. After all of your financial paperwork is submitted, the final step is to close on the loan, which can take anywhere from 30 to 60 days depending on the lender.
Tips for comparing multiple HELOC offers
The offers you receive will vary from lender to lender, but the more you know about the specific ins and outs of those offers, the better your chances of saving money and interest on your home loan. There are a few major factors to consider when deciding which HELOC offer to go with.
Introductory rate period
Since HELOCs have variable interest rates that are tied to the prime rate, your interest rate will go up and down over time. Be aware of what the prime rate is and know that you’ll be paying a markup on that interest rate. In the beginning, however, most HELOCs come with a lower introductory rate period, but the length of those initial rates will differ by lender, and you want to find the longest one possible. The longer you have a lower interest rate, the more money you’ll save over time.
Ask what your maximum HELOC interest rate cap will be. HELOCs have lifetime interest rate caps that they can’t legally exceed — so even if the prime rate rises and surpasses your rate cap, your HELOC rate won’t increase any further. If you have an existing HELOC, you can attempt to negotiate a lower rate with your lender. “Ask your current HELOC lender if they will fix the interest rate on your outstanding balance,” said Greg McBride, chief financial analyst at Bankrate, CNET’s sister site. “Some lenders offer this, many do not. But it is worth asking the question.”
Some lenders require minimum withdrawals regardless of your total line of credit, which means you could get stuck making interest payments on funds you don’t actually need if that amount is less than the mandatory minimum withdrawal amount set by your lender. It’s also important to make sure you know when your draw period ends so that you can afford the larger principal-plus-interest payments you must start making once you enter your repayment period.
We evaluated a range of lenders based on factors such as interest rates, APRs and fees, how long the draw and repayment periods are, and what types and variety of loans are offered. We also took into account factors that impact the user experience such as how easy it is to apply for a loan online and whether physical lender locations exist.
You can use CNET’s mortgage calculator to help you determine how much house you can afford. The CNET mortgage calculator factors in variables like the size of your down payment, home price and interest rate to help you figure out how large of a mortgage you may be able to afford. Using the CNET mortgage calculator can help you understand how much of a difference even a slight increase in rates can make in how much interest you’ll pay over the lifetime of your loan.